The Federal Deposit Insurance Corp. is looking to bar the former chief lending officer for the failed First State Bank of Cranford over his alleged violations of federal banking rules.Brendan Kuty/NJ.com

The Federal Deposit Insurance Corp. is looking to bar a former executive of First State Bank, a Cranford-based lender closed by regulators in October 2011, over allegedly improper lines of credit extended to its former chief executive, one of which ended up causing a major loss to the bank.

Douglas Conover, First State’s chief lending officer until 2009, was charged by the FDIC with violating federal banking regulations when he pledged the First State’s assets as collateral for a pair of credit lines that benefited Joseph Natale, the former chairman and CEO.

The credit lines, which totalled $750,000, violated federal banking regulations because they offered more favorable terms – namely the pledge of the bank’s own assets as collateral – than any other customer would have received, the FDIC said. Also in violation of the law, Conover failed to notify the bank’s board of directors about the credit lines, the agency added.

One line of credit, for $250,000, was used to support a bond that Natale and two companies he controlled were ordered to post as part of a civil litigation in which they and another person were named as defendants. The other line, for $500,000, was for a loan participation agreement the bank entered into with the daughter of Natale’s business partner, the FDIC said. This line was drawn upon in March 2011, forcing a large loss on the bank.

Regulators closed First State about seven months later, allowing Northfield Bank of Staten Island to assume its assets and its pair of branches in Cranford and Westfield.

In addition to barring Conover, the FDIC also is looking to fine him $25,000. Currently the chief lending officer at the Bank of Princeton, Conover declined to comment yesterday.

In a separate action, another former First State executive, Theodore Kest, agreed to pay a $5,000 fine. The consent order he signed does not accuse him of any specific violations, but said he did not admit or deny breach of his fiduciary duty. Kest also declined to comment.

The enforcement actions were taken in July, but only were made public by the FDIC in recent days.